responses to questions from minority shareholder … · •mainly due to change in basis of...

RESPONSES TO QUESTIONS FROM MINORITY SHAREHOLDER WATCHDOG GROUP (MSWG)

26th Annual General Meeting

10 May 2011

Background It is noted that TM continued to maintain its leadership position in the broadband segment with 1.68 million customers as at end 2010, up 17.4%. It is also set to meet the UniFi target of 1.1 million premises passed by end 2011, while the total number of UniFi subscribers exceeded 60,000 as at 18 March 2011.

Question 1(a)What is the Company’s market share in the broadband segment as compared to the previousyear, given that the number of mobile broadband subscribers has overtaken that of fixedbroadband subscribers?

OPERATIONS AND FINANCIAL PERFORMANCE

2TM 26th AGM 10 May 2011

Answer :• TM is in the lead in terms of revenue market share in the broadband segment – 56% as at end Dec 2010.

•Internet revenue grew 5.9% y-o-y.

• Malaysia’s fixed line penetration rate is 42.5% of households as at end Dec 2010 – clearly room to grow.

Source: Company Financial Result; TM Group Regulatory & BMI Team Analysis

Question 1(b)How does the Board assess and reconcile the rapid change in wireless broadbandtechnology such as 4G/LTE, with TM’s plans to increase its Streamyx hotspots or WiFito 28,000 by end 2011 from 10,982 in 2010?

• TM’s strategy: WiFi services for our nomadic and in-building users - a wireless component to complementour suite of fixed broadband services .

• 14,000 hotspots available for our customers as at 5 May 2011.

• Continue our deployment of WiFi as part of our wireless aspirations as there is demand.


TM 26th AGM 10 May 2011

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Question 2It is noted that the Company’s 2011 targeted KPIs were 2.5% growth in revenue and earnings before interest, tax, depreciation and amortization (EBITDA) margin of 32%.

(i) What is the rationale for the EBITDA margin of 32.0% to be lower than the 33.1% EBITDA margin achieved in 2010 (2009: 34.0%)?

• We expect an increase in cost for the interim mainly due tohigher network maintenance cost from maintaining 2 networks(copper and fiber) , HSBB content and equipment cost.

• EBITDA margins expected to trend upwards to mid-30’s by FY13 due to better revenue growth.


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(ii) What could be the amount in term of ringgit Malaysia for the 1.1% difference in EBITDA margin?

•The estimated difference in RM terms is RM75.5mn orapproximately 0.8% of the targeted 2011 revenue.

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BackgroundIn 2010, the Company entered into a partnership with Japan-based NTT CommunicationCorporation to develop its first private cable, Cahaya Malaysia, connecting Malaysia with HongKong and Japan. It also invested in the new Batam-Dumai-Melaka (BDM) Cable System. On 25April 2011, the Company participated in a 24-member Konsortium Rangkaian Serantau Sdn Bhd(KRS) under the National Key Economic Area. The KRS is to bring down the cost of InternetProtocol (IP) transit by buying international bandwidth in bulk and to be partners of submarinecable networks that reach the US and the European shores.

Question 3(a)How does the Board assess the impact of the KRS consortium against its wholesale and globalbusinesses which contributed an aggregate of 37.8% of segment results in 2010 (2009: 31.2%)?

• Too early to accurately gauge the potential impact of KRS to TM’scurrent business.

• Impact : Positive - opportunities for TM to enjoy lower cost ofbandwidth as KRS member and to provide future capacity as a supplierto KRS.

• Growing demand for international capacity and backhaul services –more business opportunities for TM.


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Question 3(b)

What are the Company’s roles in the KRS given its extensive experience in IP and submarine cable systems?

• To share our expertise and vast experience with KRS, if required.



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Question 3(c)

What would be the capex for the Group’s new and existing submarine cables in2011?

• The Group’s expected capex for new submarine cable projectsin 2011 is RM239.3mn, whilst capex for existing submarine cableprojects is RM58.0mn. These are investments to further growour business and revenue, including any potential revenueopportunities from KRS.

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Question 4What are the reasons for the following provisions for impairment and write-off:

Question 4(a)

The write-off for trade and other receivables as uncollectible at RM197.0 million andRM36.1 million respectively (See Note 34)?

•These debts were written off because they are no longerrecoverable despite various collection efforts. The write-offwould also enable the Company to claim tax deductions.



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Question 4(b)

The provision for impairment for investment in TM ESOS Management Sdn Bhd ofRM19.9 million (2009: RM99.0 million) (See Note 28)?

•RM19.9mn impairment comprises the difference between theexercise price and the carrying value of the TM and Axiatashares.

•This impairment has no impact to Company bottom line as theimpairment is debited against Special ESOS Reserve and not to

our Income Statement.



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Question 4(c)

The provision for impairment for available-for-sale receivables of RM17.7 million(2009: RM3.5 million) (See Note 32(a))?

• Mainly due to change in basis of assessment following theadoption of FRS 139 on 1 January 2010.

• Previously, the impairment review only takes intoconsideration overdue amounts. Under FRS 139, theimpairment review takes into consideration the past repaymenttrend and applies it to the total outstanding balance includingthe non past due portion.



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Question 5

As reported, the Board intends to dispose of its remaining shares of Axiata GroupBerhad in 2011. The shares were valued at RM481.9 million or RM0.135 per TMshare as at 31 December 2010. Would the Board consider another capitaldistribution for the financial year ending 31 December 2011?

•Any capital distribution arising from a disposal of our remainingshares in Axiata Group Berhad will be considered after takinginto account TM’s cash levels, gearing levels, businessprospects, projected capex levels as well as our otherinvestment plans and our current and expected debtobligations.



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BackgroundWe understand that TM’s Board had considered and deliberated the findings of anindependent internal investigation into the alleged improper payments by AlcatelLucent Malaysia Sdn Bhd to TM employees. The Board had agreed that the report byKPMG Corporate Services Sdn Bhd (KPMG) be submitted to the Malaysian Anti-Corruption Commission (MACC) which was duly furnished on 1 March 2011.However, the Board has not yet finalized the actions or solutions which are pendingthe outcome of the MACC investigation.

Question 6(a)Could the Board update the shareholders on the findings by KPMG as well as theprogress by MACC given that the Board had taken action to suspend Alcatel LucentSA and its group of companies from participating in ongoing and future tender andprocurement proposals for a period of 12 months?

• Based on legal counsel’s advice, the findings will not be made public at this point in time.

• The MACC investigation is beyond our jurisdiction to comment.

CORPORATE GOVERNANCE


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Question 6(b)What were the recommendations by the Board Audit Committee’s Sub-Committee and actions taken by the Board?

• The BAC’s Sub Committee (“BSC”) recommended that the findings of the KPMG forensic accountants be handed over to the MACC - done on 1 March 2011.

• Alleged involvement of TM employees: recommended a full investigation - disciplinary action and reporting to the relevant authorities if any criminal acts found.

• Internal governance: recommended a list of preventive measures. A team to implement measures will report progress to Board Risk Committee.

• The measures to improve and enhance security shall cover both physical and virtual security.

• Continuous review of processes - uphold and ensure the integrity of our corporate governance.

• TM has a zero tolerance policy towards such improprieties.

CORPORATE GOVERNANCE


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THANK YOU

•Investor Relations• Level 11 (South Wing)• Menara TM •Jln Pantai Bharu •50672 Kuala Lumpur, Malaysia • Tel (603) 2240 4848/ 7366 / 7388

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